One of the least-covered consequences of the Western sanctions campaign against Russia is a quiet but historically significant shift in which currency actually settles global oil trade. According to J.P. Morgan data cited in sanctions-tracking research, only about 5% of Russia’s oil exports are now settled in dollars — down sharply from 55% before the 2022 invasion of Ukraine. The ruble now accounts for 24% of payments. The Chinese yuan dominates the rest, settling roughly 67% of Russian oil transactions — putting the large majority of Russian barrels entirely outside the US dollar financial system.

This is arguably the most consequential and least-reported financial story to come out of the Russia sanctions regime: Washington’s own sanctions architecture has become one of the yuan’s biggest internationalization boosts in its history, achieved not through Chinese policy design but as an unintended side effect of US and EU enforcement.

How the Shift Happened

The mechanism is straightforward. As the US and EU escalated sanctions on Russia’s oil majors — designating Rosneft and Lukoil, which together account for roughly 80% of Russia’s oil exports — dollar-clearing banks became unwilling to process transactions tied to sanctioned entities, regardless of the underlying legality of a specific trade. Russian exporters and their remaining major customers, chiefly China and India, needed an alternative settlement currency that wasn’t subject to US correspondent-banking veto power. The yuan filled that gap because China’s own banking system, while not immune to secondary sanctions risk, offered a viable channel that Chinese state banks were willing to maintain for a strategically important energy supplier.

Layered on top of currency settlement is a physical logistics workaround: a “shadow fleet” of tankers now numbering in the hundreds, which Ukraine’s allies have been sanctioning vessel-by-vessel — reaching 640 designated ships across the US, UK, and EU — to try to deter buyers from taking on the compliance risk of purchasing oil from a sanctioned carrier.

Why This Matters Beyond Russia

The precedent this sets is the real story. Any country facing a dollar-based sanctions regime in the future — for any reason, in any conflict — now has a working, real-world template for restructuring its trade settlement around the yuan instead of the dollar. That is precisely the kind of “weaponisation of the dollar” outcome that US Treasury officials have historically warned against, because it erodes the dollar’s structural advantage: the assumption that there is no viable alternative reserve and settlement currency at scale.

For emerging economies, including Pakistan, watching how sanctions regimes actually function in practice — not in theory — is now directly relevant to reserve and trade-settlement planning. A financial system increasingly split into a dollar-clearing bloc and a yuan-clearing bloc changes the calculus for how countries diversify their own reserves and structure energy-import payment arrangements, an issue already relevant given Pakistan’s own reserve-diversification pressures.

The Limits of the Yuan’s Rise

This shift should not be overstated as evidence of imminent dollar decline. The yuan’s gains here are almost entirely confined to Russia-specific trade, driven by sanctions necessity rather than organic global demand for yuan-denominated reserves or contracts. China’s own capital controls, the yuan’s limited convertibility, and the absence of deep, liquid yuan-denominated bond markets outside China continue to cap its broader reserve-currency ambitions. What sanctions have done is prove the yuan can function as an alternative settlement currency at meaningful scale under stress conditions — a proof of concept rather than a completed transition.

What Comes Next

The two numbers worth tracking going forward are the dollar-settlement share of Russian oil trade — to see whether it stabilises near 5% or falls further — and whether China begins extending similar yuan-settlement arrangements to other sanctioned or sanctions-adjacent energy exporters, such as Iran, which would confirm this is becoming a durable financial architecture rather than a one-off wartime adaptation.

If you’ve followed headlines about the Strait of Hormuz over the past several months, you’d be forgiven for losing track of whether it’s actually open. That confusion isn’t a media failure — it genuinely has opened, closed, and reopened multiple times since the conflict began, and the pattern itself is the real story markets need to understand, far more than any single day’s price move.

A Timeline That Explains the Market’s Persistent Skepticism

The crisis began February 28, 2026, when US and Israeli military operations against Iran triggered Iranian retaliation, including drone, ballistic missile, and small-boat attacks on vessels attempting to transit the Strait (Brookings). By March 4, Iranian forces formally declared the Strait “closed.” Insurance for transiting vessels became unavailable or prohibitively expensive, and seafarers largely refused the journey — meaning the Strait was effectively shut even without a formal blockade in the technical sense (Brookings).

What followed was a genuinely chaotic sequence that explains why traders remain reluctant to fully price in a resolution even now. On April 9, there was no sign an earlier agreement to lift the blockade was actually being implemented — ships were once again prevented from passing. Abu Dhabi National Oil Company’s CEO confirmed the Strait remained closed despite an announced ceasefire, noting 230 loaded oil tankers were waiting inside the Gulf (Wikipedia — 2026 Strait of Hormuz crisis). On April 17, Iran’s foreign minister announced the Strait was open to all shipping — oil prices dropped 11% immediately following the announcement. The very next day, April 18, Iran closed it again, citing the US refusal to lift its own naval blockade in response.

Even the June 17 memorandum of understanding between Trump and Iranian President Masoud Pezeshkian to formally end the war and the blockades didn’t hold cleanly: on June 20, Iran said it had closed the Strait again, citing continued Israeli strikes in southern Lebanon as a violation of the broader ceasefire agreement — a claim the US military denied (Wikipedia). By June 27, the US Navy’s Joint Maritime Information Center announced a widened shipping route through the Strait near Oman, an action explicitly framed as challenging Iran’s control over the waterway rather than a clean bilateral resolution.

Why This Chokepoint Matters More Than Any Other Piece of Global Infrastructure

Approximately 20 million barrels of oil per day move through the Strait of Hormuz — roughly 20% of global seaborne oil trade and about 27% of the world’s maritime crude oil and petroleum product trade combined (Congressional Research Service). At its narrowest point, the Strait is just 33-34 kilometers wide, split into two unidirectional two-mile-wide shipping lanes separated by a two-mile buffer zone sitting entirely within Iranian and Omani territorial waters (Congressional Research Service).

Critically, no rerouting option exists that can replace this volume at comparable cost. An extended full closure would remove 17-21 million barrels from daily global supply against total world consumption of roughly 100 million barrels per day — a supply shock with no readily available substitute (Ziro Market).

The Damage Already Done, Even With Partial Reopening

The International Energy Agency characterized the disruption as the largest supply disruption in the history of the global oil market (Wikipedia — Economic impact of the 2026 Iran war). At peak conflict intensity in February-March 2026, Brent crude surged well above $120 per barrel. As ceasefire talks progressed through May and June, prices retreated significantly — falling to around $95-100 per barrel by early June, and briefly dipping to $78.24 per barrel by mid-June, the lowest level since March 3, before the framework agreement was formally signed (Al Jazeera).

But the ripple effects extend well beyond crude oil pricing. The Strait closure disrupted roughly 45% of global sulfur supply — critical for fertilizer production, copper industry metal leaching, and sulfuric acid manufacturing — and constrained helium supply, a commodity essential to semiconductor manufacturing (Wikipedia — Economic impact). Shipping companies including Maersk, CMA CGM, and Hapag-Lloyd suspended transits through the Strait and related routes like the Red Sea entirely, forcing rerouting around the Cape of Good Hope that added two to three weeks to journey times and increased per-shipment costs by 30-50% (Ziro Market).

Europe’s Quieter But Deeper Crisis

While oil price headlines dominated coverage, Europe faced an arguably more severe parallel crisis through the suspension of Qatari liquefied natural gas exports combined with the Strait closure — hitting at the worst possible moment, with European gas storage sitting at just 30% capacity following a harsh 2025-2026 winter. Dutch TTF gas benchmarks nearly doubled to over €60/MWh by mid-March (Wikipedia — Economic impact).

The European Central Bank responded by postponing planned interest rate reductions on March 19, simultaneously raising its 2026 inflation forecast and cutting GDP growth projections, with UK inflation specifically projected to breach 5% during 2026. Chemical and steel manufacturers across the UK and EU imposed surcharges of up to 30% to offset surging electricity costs, and the ECB explicitly warned that a prolonged conflict risked pushing major energy-dependent economies, including Germany and Italy, into technical recession by year-end.

Why OPEC+ Couldn’t Simply Fill the Gap

A natural question is why Saudi Arabia and the UAE — the two largest Gulf Cooperation Council producers with meaningful spare capacity — didn’t simply increase output to compensate. The answer is logistical rather than a lack of willingness: the Strait closure itself limited their ability to actually export any increased production volumes, even when pumping more oil, because the export bottleneck was the same chokepoint causing the broader crisis (Ziro Market). Total OPEC country production fell more than 30% since the start of the war, and the region’s spare capacity — the traditional shock absorber for global oil markets — proved largely irrelevant when the actual export route itself was under attack (Brookings).

US shale producers, meanwhile, responded more slowly to the price signal than historical patterns would predict. Rig counts stayed largely steady through April 2026, though well-completion activity in the Permian Basin did rise roughly 20% over several weeks as previously drilled wells came into production — still below pre-pandemic activity levels overall (Brookings).

The Market Is Still Pricing a Discount for Uncertainty, and Analysts Say That’s Correct

Vandana Hari, founder of Singapore-based Vanda Insights, offered perhaps the most useful framing for understanding current market behavior: crude’s slide following the memorandum of understanding is “entirely sentiment-driven,” with markets front-running the prospective reopening and likely pricing in a best-case scenario for normalized flows — meaning potential hiccups, from logistics to renewed geopolitical tensions, aren’t being adequately factored in (Al Jazeera).

Given the actual track record — multiple announced reopenings followed by renewed closures throughout April and June — that skepticism looks well-founded rather than excessive.

What This Means for Businesses and Investors Going Forward

For companies with Gulf-dependent supply chains: Treat any single reopening announcement as provisional rather than a genuine all-clear, given the pattern of reversals throughout the spring. Maintaining rerouting contingency plans and insurance flexibility remains prudent even after formal ceasefire signings.

For inflation-sensitive investors and central bank watchers: The relationship Ziro Market’s analysis highlights is worth internalizing directly: whether oil settles near $80-85 (supporting rate cuts, lower CPI, stronger oil-importing currencies) or spikes back toward $120 (elevated inflation, delayed rate cuts) functions as a genuine macro regime switch — not a marginal input, but potentially the single largest swing factor for 2026 global monetary policy.

For commodity-exposed sectors beyond energy: The sulfur, fertilizer, and helium supply disruptions are underappreciated second-order effects that specifically hit agriculture and semiconductor manufacturing — sectors not typically associated with Middle East conflict risk but directly exposed through this specific chokepoint.

The Bottom Line

The Strait of Hormuz crisis of 2026 has been less a single supply shock than a recurring pattern of partial resolutions and renewed disruptions, and that pattern itself is the most important thing for markets and businesses to understand going forward. Prices have retreated substantially from their conflict-peak highs, and the June 17 memorandum of understanding represents genuine diplomatic progress. But given that the Strait has been declared “open” and then closed again multiple times within the same several-week windows, treating the current relative calm as a durable resolution — rather than the latest phase in an ongoing negotiation — would be a mistake that both markets and policymakers seem determined not to repeat.

On June 29, a tanker called the Sierra pulled into the Indonesian port of Balikpapan carrying just under 770,000 barrels of Russian crude oil, worth roughly $75 million. It sailed from Kozmino, Russia. It’s a small shipment in the scheme of global oil trade — but it marks the first delivery under a supply deal Jakarta struck with Moscow in April, and it captures something bigger about how the Iran war has reshuffled who buys oil from whom, according to Bloomberg reporting via gCaptain.

Why Indonesia needed a new supplier

Indonesia is Southeast Asia’s largest economy, and it’s a structural oil importer. Domestic crude production sits around 577,000 barrels a day, well below the government’s own 610,000 bpd target and a fraction of the roughly 1.5 million bpd the country pumped in the 1990s, according to OilPrice.com. Total petroleum demand, meanwhile, runs around 1.6 million bpd — far above what domestic refineries can process even at full tilt.

That gap became a crisis when the Strait of Hormuz effectively closed for weeks during the Iran war. Roughly 20–25% of Indonesia’s oil imports normally transit through the strait, and when that route seized up, Jakarta had to look elsewhere fast, per ICIS.

The economics of the pivot

President Prabowo Subianto’s April visit to Moscow produced a framework for up to 150 million barrels of Russian crude over time, according to Antara News. Rystad Energy analyst Prateek Panday told the Business Times that the diversification strategy is “backed by supply economics, refinery compatibility and medium-term energy security logic, not just opportunism around the Middle East crisis” — a framing Indonesian officials have echoed in public.

There’s a notable wrinkle in how the deal was executed: the June cargo was purchased not by Pertamina, the national oil company that normally handles energy imports, but by Lemigas, a government fuel-testing body, according to gCaptain. Indonesia’s energy ministry did not respond to requests for comment on the arrangement — a detail that has drawn scrutiny given the sanctions sensitivities around Russian crude purchases since 2022.

The cost of not diversifying fast enough

The bill for staying dependent on Middle Eastern supply during the crisis has been steep. Indonesia’s rupiah breached the psychological 18,000-per-dollar threshold in June, a record low, as Al Jazeera reported, with the country’s trade surplus narrowing from $3.3 billion to just $89 million in a single month as energy import costs surged and dollar supply tightened.

By May, that pressure tipped into an outright deficit. Indonesia Investments reported a $1.61 billion trade deficit for May 2026 — ending an unbroken six-year run of monthly surpluses stretching back to 2020. Fuel import costs alone jumped 99.5% year-on-year, and Pertamina had to prioritize domestic refinery supply over crude exports, pushing Indonesia’s own crude exports to zero during the worst of the Hormuz blockade.

What comes next

Jakarta’s exposure hasn’t fully resolved. S&P Dow Jones Indices has placed Indonesia on watch for a downgrade to frontier-market status, mirroring an earlier move by MSCI, according to Trading Economics — a signal that foreign investors are nervous about capital outflows even as oil prices have eased somewhat from their peak.

The Russia deal is unlikely to fully insulate Indonesia from future shocks; Russian crude flows have so far been sporadic, with only a handful of cargoes delivered over the past six months. But it does represent a structural shift in how Southeast Asia’s biggest economy is thinking about energy security — treating Russian supply not as a wartime workaround, but as a plank of a longer-term diversification strategy that could eventually extend to refinery and terminal investment through a stalled $24 billion Rosneft-Pertamina project in Tuban.